2026 (1) TMI 399 - HC - IBC

Approved IBC s.31 plan's 'existing management' clause on pending mesne profits suit; claim barred against debtor, only old management liable

'Existing management' in an approved resolution plan under s.31(1) IBC was construed to mean the management of the corporate debtor immediately prior to ... CIRP - Resolution Plan approved (RP) - term “existing management” - Seeking extension of time for completion of the reference for mesne profits - HELD THAT:- Consequently, in the facts and circumstances of the present case, “existing management” as used in the RP will mean the management of the appellant immediately prior to the present management taking over change. RP allowed the suit to continue, subject to the monetary liability being met by the erstwhile management of the appellant, if there was any monetary liability found in such proceedings. It is trite law, that once a resolution plan is duly approved by the adjudicating authority under Section 31(1) of the Code of 2016, the claims as provided in the RP shall stand frozen. It will be binding on all stake holders. On the date of approval of the RP all claims which are not part of the RP shall stand extinguished. No persons will be entitled to initiate or continue with any proceedings in respect to a claim which is not part of the RP. Stakeholders of the corporate entity in respect of which a RP stands approved is governed and bound by the approved RP. So far as the appellant and the new management is concerned no claim against the appellant or the new management was allowed by the approved RP. No other claim, in the suit was allowed to be continued with and to be recovered from the erstwhile management of the appellant by the approved RP. Respondents/plaintiffs sought clarifications from the NCLT, Guwahati as to the approved RP and the continuance of the suit as against the appellant. The clarification application was disposed of by NCLT, Guwahati by the order dated November 29, 2018. NCLT, Guwahati did not modify the RP so far as the suit is concerned. In such circumstance, CS 16 of 2007 as it stands as against the appellant cannot proceed by reason of the sanctioned R P. In the event, the respondents/plaintiffs seek to continue to claim any financial relief in relation to the affairs of the appellant at the hands of the erstwhile management, the same may be recovered from the erstwhile management in terms of the RP. Respondents/plaintiffs may take appropriate steps in this regard in CS 16 of 2007 within a fortnight from date. In default of the plaintiffs/respondents not taking appropriate steps in CS 16 of 2007 within a fortnight from date, department will treat CS 16 of 2007 as disposed of. If steps are taken, CS 16 of 2007 will proceed in accordance with law as against the erstwhile management. In either of the two situations, CS 16 of 2007 is dismissed as against the appellant. Issues: (i) Whether, after approval of a Resolution Plan (RP) by the NCLT under the Insolvency & Bankruptcy Code, 2016, the suit for quantification and recovery of mesne profits can be continued and enforced against the corporate debtor under the new management or must be restricted to the erstwhile (existing prior) management in accordance with the terms of the sanctioned RP.Analysis: The RP sanctioned by the adjudicating authority records the claim of the plaintiffs and specifies that no claim shall lie against the corporate debtor or the new management and that any financial recovery, if to be made, shall be recovered from the 'existing management'. The RP was approved under Section 31(1) of the Insolvency & Bankruptcy Code, 2016, and a moratorium had been declared under Section 14 during the CIRP. The sanctioned RP therefore governs stakeholder rights; claims not permitted by the RP stand extinguished as against the corporate debtor and the new management. The term 'existing management' in the RP, read in light of the RP's provisions for change of management, denotes the management of the corporate debtor immediately prior to the takeover under the RP. The sanctioned RP did not permit continuation of the suit against the corporate debtor or its new management but allowed quantification to proceed subject to monetary liability being realizable from the erstwhile management.Conclusion: The suit for quantification of mesne profits cannot proceed against the appellant or the new management; it may continue only against the erstwhile (existing prior) management and any monetary liability, if found, is to be realized from that erstwhile management. CS 16 of 2007 is dismissed as against the appellant.